Highlights of Vietnam's Banking Sector

((Baonghean) - In 2016, Vietnam faced many negative impacts from the external context, most notably drought, natural disasters, and slower-than-expected global economic growth; however, overall, the national economy still experienced positive growth, with GDP growth for the whole year at approximately 6.21%.

The overall growth momentum of the economy was driven by strong growth in the processing, manufacturing, and service industries; a significant increase in total consumer demand, with retail sales of goods and consumer services reaching 85.8% of GDP compared to 77.3% of GDP in 2015; a 15.1% increase in total capital supply to the economy compared to 2015; a nearly 20% increase in the stock market, with market capitalization reaching 38% of GDP compared to 32.4% in 2015; and a 6.8% increase in exports, resulting in a trade surplus of US$2.68 billion.

Transactions at VietinBank - Nghe An Branch. Photo by HV.

Thanks to these contributions and successes, in 2016, the banking sector basically completed its planned targets, including controlling inflation below 5%, stabilizing the macroeconomy, supporting economic growth, and ensuring the safety of the system; the total money supply increased appropriately.

The system of credit institutions in general achieved a capital adequacy ratio of 13% (the minimum required level is 9%) and fully met the ratios of solvency and the ratio of short-term capital for medium and long-term lending as prescribed by law; kept medium and long-term lending interest rates below 10% and non-performing loans below 3%...

Regarding credit, banks have made many efforts to improve credit conditions by streamlining procedures, applying flexible and gradually reducing interest rates for both deposits and loans, in line with monetary policy objectives, and focusing more strongly and balancedly on production and business sectors, especially those prioritized by the Government. Credit growth is on track, and total outstanding credit for the year is estimated to increase by approximately 18.5% compared to the previous year.

The State Bank of Vietnam has also successfully and positively concluded the 30,000 billion VND preferential credit package to support the purchase of social housing, ensuring the disbursement of signed loans at the preferential interest rates that borrowers were entitled to and committed to in the signed loan agreements.

Specifically, following the direct instructions of the Prime Minister at the Conference on Building the Agricultural Industry on December 18th in Ho Chi Minh City, the State Bank of Vietnam will quickly research and finalize a favorable mechanism for a credit package worth 50,000 - 60,000 billion VND for the development of high-tech agriculture, in order to soon issue it.

Regarding interest rates, in 2016, the State Bank of Vietnam (SBV) actively implemented a comprehensive set of solutions to reduce lending interest rates, supporting production and business activities in the economy with the aim of maintaining the policy interest rate, supporting and reducing pressure on safety limits. In 2016, under pressure to balance the budget, approximately 280,000 billion VND of government bonds with a common maturity of 5 years were successfully issued at interest rates of just over 5% per year, compared to 6.5% the previous year.

The central exchange rate policy, first implemented on January 4, 2016, has been having a positive effect in stabilizing the exchange rate, allowing it to react more flexibly and promptly to domestic and international developments; reducing pressure to sell foreign currency to intervene in the market and other speculative expectations.

The restructuring roadmap for credit institutions is continuing as planned, reducing the number of substandard credit institutions and gradually improving the quality and competitiveness of the entire system and each member institution. Credit institutions are gradually adopting governance standards in accordance with international practices, improving operational efficiency and credit quality; stabilizing the confidence of depositors and investors. The State Bank of Vietnam's monitoring data and non-performing loan figures of credit institutions have become more transparent and up-to-date.

The State Bank of Vietnam's monetary policy actions have been supported and highly appreciated by the Government and international organizations. International credit rating agencies have unanimously upgraded and given better ratings to many Vietnamese banks in 2016.

According to the Vietnam Banking Industry Outlook Report 2017, published in mid-December 2016 by the international rating agency Fitch Ratings: Vietnamese banks have improved their financial health. The credit structure has shifted towards reducing lending to inefficient state-owned enterprises and increasing lending through retail channels, helping to alleviate pressure on asset quality.

Building on the successes of 2016, the Vietnamese banking sector confidently enters 2017 with key tasks emphasized by Governor of the State Bank of Vietnam, Le Minh Hung, at the online conference between the Government and localities at the end of 2016. These tasks include: Continuing to manage interest rates in 2017 flexibly and harmoniously, ensuring stability in the basic interest rate level and striving to reduce medium and long-term interest rates as directed by the Government; supporting macroeconomic stability; controlling inflation; and maintaining reasonable economic growth.

Dr. Nguyen Minh Phong